For all of the talk of a looming pension crisis in Canada, a strong majority of current retirees feel positively about their post-work life. According to the latest Sun Life Financial Retirement Now report, published in February 2016, many retirees are spending less and feeling healthier than they did before leaving the workforce, despite the fact that most hadn’t chosen their retirement date.
Coverage of the report, which was based on an Ipsos study of 2,006 retired and 2,004 working Canadians, focused on two key findings: 88 per cent of retirees felt positively about their life in retirement and, on average, Canadian retirees are living on 62 per cent of the income they earned immediately before retiring. For all of the anxiety working Canadians feel about their financial future (and without question, that nervousness is real), today’s retirees are hardly in crisis.
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The findings highlight three important stories for plan sponsors. In varying degrees, each runs contrary to conventional wisdom.
1. Retirees aren’t in bad financial shape
The survey asked both workers and retirees what they spend on food, housing, health care, leisure, travel, entertainment and transportation, along with what they pay in income tax and contribute to their savings each month.
On average, retirees spend $2,611. That’s 24 per cent less than the $3,431 workers spend on average. Interestingly, while leisure, travel and entertainment expenses are higher among retirees than workers, spending in that area drops after age 70. And there’s an interesting hike in housing costs after age 75 (retirees aged 75 to 80 spend $792 on average on housing versus those between 66 and 69 who spend $666). Generally, though, expenses in retirement remain steady between age 65 and 80.
The survey asked retirees to name the biggest financial surprise they’ve experienced in retirement. The top answer (32 per cent) was how easy it is to live on a reduced budget. Contrast that with the 22 per cent who said the biggest financial surprise was how difficult it is to live on a reduced budget. Ten per cent said they’re spending more than they had expected, and another 10 per cent said they’re spending less than they had anticipated.
Half of retirees (48 per cent) agreed with the statement: “I spend less than I expected to in retirement.” Thirty-two per cent agreed they spend more.
2. Health can improve in retirement
There has long been an understanding of the physical and mental-health benefits associated with work. So it’s a surprise to see that 62 per cent of retirees agreed with the statement: “My emotional health has improved in retirement.” Only 25 per cent disagreed. The remainder didn’t know.
On the flip side, only 11 per cent agreed that their emotional health had deteriorated in retirement. Responses to the questions about physical health were less counterintuitive. Forty-two per cent agreed their physical health had improved in retirement versus 45 per cent who disagreed. Meanwhile, 27 per cent agreed and 63 per cent disagreed with the statement: “My physical health has deteriorated in retirement.”
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Age matters less than expected in some areas. Ninety per cent of respondents aged 66 to 69 years old said their mental health is very good (45 per cent) or good (45 per cent). Similarly high numbers among those in older age groups said the same. There’s sometimes a tendency among older Canadians not to report emotional health issues, something that may be a factor here.
Among those aged 66 to 69 years old, 68 per cent described their physical health as very good (12 per cent) or good (56 per cent). Again, the numbers were comparable for those in older age groups up to 80 years old.
The survey didn’t include retirees over 80 years old, so the findings don’t fully reflect the health issues that can come into play later in life. The average age among the 2,006 retirees surveyed was 68.
3. Most Canadians don’t get to choose their retirement date
Just one-third of retirees left the workplace on the date they planned.
Among those who retired on a date they didn’t choose, health was the most common driver. Thirtyfive per cent of retired Canadians who didn’t retire as planned left the workforce for personal health or medical reasons.
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Another six per cent left work as a result of someone else’s health. Twenty per cent took an optional early retirement offer from their employer; 15 per cent were forced to take retirement; and the remaining 24 per cent retired for another reason.
Will retirement continue to look this good as more baby boomers leave the workforce? It’s possible it won’t given the decline in workplace pension coverage and the persistence of historically low interest rates. As a result, it’s an issue that merits continued study and followup.
Kevin Press is assistant vice-president of market insights at Sun Life Financial.
Source for all figures: 2016 Retirement Now report
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